While August's spotlight was on Nvidia (NVDA) earnings and potential Fed rate cuts, the election season is poised to shift investor focus. With a September rate cut now a foregone conclusion, the 2024 U.S. presidential election on Nov. 5 is a high-stakes event that’s grabbing international headlines - and stirring up market jitters.
As political stakes escalate, the uncertainty surrounding the election outcome and the subsequent policy shifts often sends financial markets into a frenzy. For investors aiming to shield their portfolios against this short-term market turbulence, defensive dividend stocks can offer a rock-solid anchor of stability and reliable income. These stocks typically come from sectors that tend to be more resilient than most through economic ups and downs.
With this in mind, here are three top-notch, defensive, dividend-paying picks to help protect your portfolio and provide a financial buffer against pre-election chaos.
Dividend Stock #1: Zoetis
New Jersey-based Zoetis Inc. (ZTS) is a global leader in animal health. With over 70 years of innovation, Zoetis has been at the forefront of predicting, preventing, detecting, and treating animal illnesses. The company is dedicated to supporting veterinarians, pet owners, livestock farmers, and ranchers worldwide. Its extensive portfolio and pipeline of medicines, vaccines, diagnostics, and technologies positively impact animal health in more than 100 countries.
Valued at a market cap of roughly $85.1 billion, ZTS stock has dipped 4% on a YTD basis, lagging the broader S&P 500 Index’s ($SPX) gain of 13.5% during this period.
Zoetis has maintained a five-year streak of consecutive dividend increases. On Sept. 4, the company paid its shareholders a quarterly dividend of $0.432 per share. The annualized dividend of $1.73 per share represents a modest 0.93% yield. Additionally, Zoetis' conservative payout ratio of 29.04% signals strong potential for future dividend growth.
From a valuation standpoint, ZTS stock is priced at 31.46 times forward earnings and 9.93 times sales, lower than its own five-year averages of 36.11x and 10.64x, respectively.
Shares of Zoetis shot up more than 5% on Aug. 6 after the company revealed its Q2 earnings results, which shattered Wall Street’s expectations on both the top and bottom lines. The animal health company posted revenue of $2.4 billion, reflecting a solid 8% improvement from the year-ago quarter, driven by strong results in both its U.S. and international markets.
U.S. revenue soared to $1.3 billion, a striking 12% year-over-year increase, while international sales climbed to $1 billion, marking a solid 4% growth. On the earnings front, the company posted $1.56 per share on an adjusted basis, beating estimates by 4.7% and demonstrating 10.6% annual growth.
Commenting on the Q2 performance, CEO Kristin Peck noted, “Our excellent first half across key franchises, including osteoarthritis (OA) pain, Simparica and key dermatology, is a testament to our commitment to deliver breakthrough innovations that address our customers' unmet needs and our differentiated execution.”
Encouraged by the strong first-half performance, management boosted its fiscal 2024 guidance. The company now expects revenue to range between $9.10 billion and $9.25 billion, reflecting a solid 9% to 11% operational growth, while adjusted EPS is forecast to range between $5.78 and $5.88.
Analysts tracking Zoetis project the company’s profit to climb 9.8% year over year to $5.84 per share in fiscal 2024, and rise another 9.9% to $6.42 per share in fiscal 2025.
ZTS stock has a consensus “Strong Buy” rating overall. Of the 15 analysts covering the stock, 14 suggest a “Strong Buy,” and one has a “Moderate Buy” rating.
The average analyst price target of $219.38 indicates a potential upside of 15.7% from the current price levels. The Street-high price target of $248 suggests that ZTS stock could rally as much as 30.8%.
Dividend Stock #2: Kenvue
Headquartered in New Jersey, Kenvue Inc. (KVUE) is one of the world's largest consumer health companies, with over a century of history. Home to iconic, science-backed brands such as Aveeno, BAND-AID, Johnson’s, Listerine, Neutrogena, and Tylenol, Kenvue has a broad portfolio of trusted consumer staples in its portfolio.
The company’s market cap is $43.1 billion. On a YTD basis, the stock has underperformed the broader market, with gains of only 6.5%. However, over the past three months alone, KVUE stock is up 23%, easily overshadowing the SPX’s single-digit returns during this period.
On Aug. 28, Kenvue approved a 2.5% boost to its quarterly dividend, paying $0.205 per share to shareholders. This increase highlights the company’s focus on returning value and driving sustainable growth. With an annualized dividend of $0.82 per share, translating to an enticing 3.64% yield alongside a healthy payout ratio of 65.53%, Kenvue demonstrates its strong commitment to maximizing shareholder returns.
On Aug. 6, shares of Kenvue took off more than 14.6% after its Q2 earnings report blew past Wall Street's forecasts. Despite registering a marginal year-over-year decline, the company’s net sales of $4 billion managed to narrowly exceed Wall Street’s projection of $3.9 billion.
Adjusted EPS of $0.32 climbed 3.3% year over year, and smashed forecasts by 14.5%. The company’s gross margin surged to 59.1%, up from 55.5% in the same quarter last year, underscoring an impressive leap in performance and pricing strategy.
CEO Thibaut Mongon said, “With the progress we have made in the first half of the year to increase productivity and free up resources, we are accelerating investment behind our global portfolio of iconic brands to reach more consumers and deliver on our long-term value creation algorithm.”
For fiscal 2024, management reaffirmed its outlook, with net sales growth projected to range between 1% to 3%, while organic net sales growth is expected between 2% and 4%. Also, adjusted EPS is forecasted to land within the range of $1.10 to $1.20.
Analysts tracking Kenvue expect the company’s bottom line to declin 16.3% annually in fiscal 2024 to $1.08 per share, before rising 13.9% year over year to $1.23 per share in fiscal 2025.
Overall, Wall Street is optimistic, with a consensus “Moderate Buy” rating for KVUE. Of the 14 analysts in coverage, five advise a “Strong Buy,” one advocates a “Moderate Buy,” seven suggest a “Hold,” and one recommends a “Strong Sell.”
The average analyst price target of $22.67 is roughly flat with current price levels. However, the Street-high price target of $28 suggests that KVUE could rally as much as 22% from here.
Dividend Stock #3: American Water Works
Valued at $28.15 billion by market cap, New Jersey-based American Water Works Company, Inc. (AWK) is one of the largest regulated water and wastewater utility companies in the U.S., with roots stretching back to 1886. The company delivers safe, clean, and affordable drinking water and wastewater services to over 14 million people across 14 states and 18 military installations.
Shares of American Water Works have gained roughly 9% on a YTD basis. Over the past six months, AWK stock is up 19.6%, soaring beyond the broader SPX’s 5.9% return over the same time frame.
With a history of 15 years of consecutive dividend increases and a payout ratio of 58.83%, American Water Works is highly dedicated to delivering steady and appealing returns to its shareholders. On Sept. 4, the company paid its shareholders a quarterly dividend of $0.765 per share. This brings its annualized dividend to $3.06 per share, offering a solid 2.12% yield.
Apart from its highly attractive dividend yield, the stock appears reasonably priced at current levels. Priced at 27.26 times forward earnings and 6.63 times sales, the stock trades below its own five-year averages of 33.21x and 6.83x, respectively.
After delivering mixed Q2 earnings results on July 31, shares of American Water climbed about 1.5% the following trading session. The company’s revenue surged 4.8% year over year to $1.2 billion, beating estimates by 4.1%. However, its EPS of $1.42 fell short of Wall Street expectations, and remained nearly flat compared to the previous year.
During the first half of fiscal 2024, the company invested $1.4 billion, with the majority allocated to critical infrastructure improvements aimed at boosting customer service. This also included $119 million in acquisitions across Illinois, New Jersey, and Virginia.
CEO M. Susan Hardwick said, “While results are relatively flat year over year, that is what we expected as we will see the results of our recent regulatory outcomes in the latter part of this year.”
For fiscal 2024, management anticipates EPS between $5.25 and $5.30. The company also said that it is well on track to meet its 2024 capital investment goals. And by year-end, AWK plans to invest a total of around $3.1 billion across its operations.
Analysts tracking American Water Works expect the company’s profit to climb 7.4% year over year to $5.26 per share in fiscal 2024 and jump another 8.2% to $5.69 per share in fiscal 2025.
AWK stock has a consensus “Moderate Buy” rating overall. Of the 11 analysts covering the stock, three suggest a “Strong Buy,” one recommends a “Moderate Buy,” six advocate a “Hold,” and one has a “Strong Sell” rating.
AWK stock trades flat with its average analyst price target of $143.33, while the Street-high price target of $164 suggests a potential upside of about 13.6% from current price levels.
On the date of publication, Anushka Mukherji did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
